Interest Rates: July Data Adds Confusion to Fed-Watching
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Here's your money briefing. I'm J.R. Whalen at The Wall Street Journal in New York. Ask five different people what the Federal Reserve will do with interest rates in late July, and you're likely to get five different answers. A journal markets report will be by in just a couple of moments and explain how July's economic readouts have thrust a lot of confusion into Fed watching. First, some money and market news you should know. The federal minimum wage would more than double to $15 by 2025 under a bill passed by the House on Thursday. But even though the bill, which was sponsored by Democrat Bobby Scott of Virginia, was a compromise among several sectors of the party, it's unlikely to see a vote in the Senate, and the White House has signaled its opposition as well.
The Congressional Budget Office determined that raising the federal wage floor to $15 had the potential to lift 1.3 million people out of poverty,
Why is July's economic data creating confusion about the Fed’s next interest rate move?
an increased pay for 17 million workers. But the study also showed such an increase could lead to 1.3 million people losing their jobs. And research from the consulting firm Captify says on the first day of Amazon Prime Day, on July 15th, there were 18 times more searches for the phrase canceling Amazon Prime than there were the previous day. And on one of the biggest online shopping days of the year, Captify says searches for eBay, Best Buy, Target, and Walmart rose 255%. And Adobe Analytics has run the numbers the past several years. Turns out the two-day Prime Day event is the third and fourth time outside the holiday shopping season where e-commerce sales exceeded $2 billion. The other two were Labor Day 2018 and this year's Memorial Day holiday.
Let's talk about knowns and unknowns. What's known is that the Federal Reserve is debating whether to announce an interest rate reduction at its meeting at the end of July. What's unknown is how deep a rate cut will come from the Fed. In Wall Street Journal, markets reporter Akani Ohtani is here. She says that July's economic data is raising all sorts of questions. So Akani, you know, many on Wall Street say that a rate cut larger than 25 basis points is unlikely because of how well the stock market's been doing in July.
Yeah, it's hard for people to imagine that stocks that have returned to record territory and economic data as well pointing to some resilience in the economy, that that sets up a condition where the Fed has to cut rates and specifically cut rates by 0.5 percentage points. as its first move. I mean, remember, this is going to be the first rate cut since the financial crisis. So while there are a lot of analysts and investors who believe, you know, maybe they're going to sort of do an insurance cut and basically take rates down by 0.25 percentage points just to sort of safeguard against a slowing of the economy, it's really hard for a lot of folks to imagine that they're going to do something more drastic than that.
What else has come out in the data this month that makes the measure of a rate decrease hard to predict?
We started the month with really strong figures for the job market and that was reassuring because the month before we had seen weaker than expected hiring and that had sort of introduced some worries to some folks that maybe the weakness that we were seeing in sectors like manufacturing was starting to trickle elsewhere into the economy. But the labor market report that we received was very much sort of helped put those worries to bed. And then we got stronger than expected pickup in inflation and also in retail sales. So those three things sort of helped a lot of investors sort of feel that the economy didn't slow down as much as maybe some had feared in the second quarter.
You know, there are a lot of people on Wall Street who know the Fed like the back of their hand. And they know how to measure what the Fed might do based on trends, based on precedent and whatever.
How could a 25 vs 50 basis point Fed cut affect markets and why do opinions differ?
But everyone has a different opinion.
And I think that's what's so interesting about the Fed. I mean, it has sort of been one of the biggest themes driving the markets this year.
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